TexMex Food Company is considering a new salsa whose data are shown below. The equipment...
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TexMex Food Company is considering a new salsa whose data are shown below. The equipment to be used would be depreciated by the straight-line method over its three-year life and would have a zero salvage value, and no new working capital would be required. Revenues and other operating costs are expected to be constant over the projects three-year life. However, this project would compete with other TexMex products and would reduce their pre-tax annual cash flows. What is the projects NPV? (Hint: Cash flows are constant in years 1-3.) WACC Pre-tax cash flow reduction for other products (cannibalization) Investment cost (depreciable basis) Straight-line deprec. rate Sales revenues, each year for three years Annual operating costs (excl. deprec.) Tax rate 10.0% $5,000 $80,000 33.333% $67,500 $25,000 35.0% a. $3,636 b. $3,828 c. $4,019 d. $4,220 e. $4,431
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